Economist at UOB Group Enrico Tanuwidjaja reviewed the implications of the coronavirus outbreak on the Indonesian markets.
Key Quotes
“Indonesia’s financial assets, in particular its sovereign bond market has had a remarkable run in 2019, recording a full-year inflows of close to USD12bn (this is comparable to strong inflows in 2014 and 2017). A combination of rate cuts, stable inflation, and relatively attractive yield differences between Indonesian and two other safe-haven sovereign bonds (the German Bunds and US Treasuries) have continued to attract global inflows into the Indonesian bond market.”
“Historical precedence suggests that Indonesian bond market and the rupiah were hardly moved or affected negatively during viral outbreak episodes such as during the 2003’s SARS (severe acute respiratory syndrome) and the 2012’s MERS (Middle-Eastern respiratory syndrome). Instead, we think that Indonesian assets and the rupiah are more outflows sensitive to financial market shocks such as the 2013’s Fed Taper Tantrum and 2015’s CNY devaluation. This suggests that given the shallowness of the Indonesian financial markets, we are more prone and very sensitive to financial shocks compared to other type of shocks, such as the virus outbreak shock.”
“We are of the view that given the measured pace of narrowing in the current account deficit (CAD), the recent strong inflows coupled with stellar appreciation of the IDR might not be sustainable.”
“The best illustration to explain the current situation is that Indonesian assets are experiencing a very intense tug-of-war between the enticing yield differentials that encourage continued inflows and the underlying CAD position that necessitates gradual depreciation of IDR and more measured inflows into the asset markets – with the former winning at the moment.”
“Going further into 2020, we are of the view a more expansionary fiscal policy to support growth recovery, inflation risks amidst higher administrative prices, and potentially a pause in Bank Indonesia’s rate cutting cycle, bond assets and the rupiah are likely to consolidate lower from the recent stellar rally. Should the containment of the 2019-nCoV be speedier than expected, we could probably expect the global growth recovery to resume in 2020 and would support a case more for a more pronounced equity market rally.”
FXStreet Indonesian Site - new domain!
Access it at www.fxstreet-id.com
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.